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FinTechs and Financial Institutions

Old and new school, or FinTech and Financial Institutions, a collision path or a stimulation effect?

Every day there are loads of Fintech related announcements: SoFi raised a billion dollars with Softbank, a leading strategy consultants announcing that Fintech will carve out 30% or retail banking revenues in the next 20 years (sic), the growth of crowfunding is exponential, and so on.

There are Op-Ed about the "uberization" of the economy and the future disappearance of the traditional Financial Institutions (banks and insurance companies) building on Bill Gate´s prediction: "we don´t need banks but banking" ( he said that 30 years ago!). All this Brownian movement is absolutely real and fascinating, nonetheless is this the Copernican revolution some are predicting?

From our experience, FinTechs, defined as a new player using a "new" technology in the field of financial services products and services, can indeed create disruption, but more often, do help finacial institutions to improve bits of their value chain to, either reduce cost to serve or enhance customer service.

Disruption has indeed happened in the distribution of insurance in the UK via comparators. It has changed the face of the insurance in the UK. Very few swarming of this has been successfully profitable elsewhere. This is linked to the nature of the UK clients and the margins of the Insurance industry. In private banking, the Robo-advisers are flourishing but few are profitable. Are they really differentiated from what Merrill Lynch or Charles Schwab are doing since years with their simulation tools. Google is relaunching for the third time its payment "wallet", will it be as short fused as the previous ones?

On the other hand, a number of banks are integrating some components from Fintech in their value chains, like the previously mentioned Robo-advisers in the Private banking area, or the wallet technologies for payments tools distributed by the banks. As a consulting firm, for meeting many of the FinTech promotors or their funders we are always amazed by their "technical" enthusiasm but the depth of their FI intrinsic knowledge is often very shallow.

We believe that the value of FinTech lies more in the strong cooperation with financial institutions. In the other hand the opportunities for a FinTech to be displacing financial institutions, may exists, in the very specific cases.